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JBE, CPA
JBE, CPA, Certified Public Accountant (CPA)
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can developer charge sales tax on new home? if so is this deductable or illegal? where can this charge be found on final papers?
Generally, developers are the users and pay sales taxes on the materials that they purchase to build a home for resale. Obviously, sales taxes are included in the cost of the home and therefore is recovered by the developer when he sells the house.

It would be unusual for the developer to sell a house and then add an upcharge for sales taxes.

Although, I suppose anything is possible in California.


JBE, CPA
JBE, CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 137
Experience: 25 Years Experience
JBE, CPA and other Tax Specialists are ready to help you

If you haven't found the "sales tax" on the final papers, where did you see "sales tax?" Why do you think sales tax is being charged on the house?


What is the sales price of the house?


What is the amount of sales tax cited?

 
Customer: replied 11 years ago.
Reply to T. R. Miller, The SunTaxMan's Post: cannot find subject "sales tax" on final papers. Sale price of house 325,000.00 The question of sales tax arose in converstation with another about tax deductions and he said the word sales tax and that developers cannot charge a sales tax to the buyers.   Wonder if this is a hidden fee somewhere in the paper work and can this be obtained for verification. California laws are nuts but understand our governor signed this into law but then again cannot find this law anywhere in the annuls.
Sandra Kawashima

Most states limit assessing sales tax to personal property and some services - never on real property. I would refer you to CA publication 61....


http://www.boe.ca.gov/pdf/pub61.pdf


which verifies this information - sales tax is levied on sales of "tangible personal property."


Is there a "hidden" fee for the sales tax? Of course. I agree with JBE, above - I cannot imagine that any builder or developer would not include the sales tax they have paid on materials they purchased to construct a building, along with the cost of materials and labor and a "profit margin" when they determine a sales price for their product. Not to include this component of expense would mean less profit for the seller - a sure way to limit your lifespan as a business person.


I also agree with JBE, that for a builder/developer to state sales tax as a separate, specific item on a sales contract would be "unusual" - and I would go one step further - it would be illegal.


If this does not answer your question, or raises other questions, please let me know.

 
The latest tax changes now allow a taxpayer to deduct sales taxes. As a result some home builders are selling the houses and splitting out the sales tax costs. As a result buyers get significant tax deduction in the year of acquisition of their residence.

Prior to the elimination of the sales tax as an itemized deduction on Schedule A this was a fairly common tax technique.   The problem that significantly more taxpayers are subject to the alternative minimum tax than before so one has to weigh the benefits against the alternative minimum tax.

JBE, CPA    

JBE has expressed a practice I am not aware of. I appreciate the input - but disagree that it is legal.


I question the practice. I can't help but wonder if it will withstand IRS audit - expressing a "Sales Tax" item on a sales document for REAL property. The home buyer is not buying the "materials" that have gone into the home (and it is the "materials" - lumber, nails, appliances, etc. on which the sales tax was originally levied).


The home buyer is buying the "home" - real property - and Sales Tax is never levied on real property.


Here is a quote from Maryland Tax Code, dealing with Sales Tax: 



.19 Real Property Construction, Improvement, Alteration, and Repair.



A. The sale of tangible personal property to a person who will use or resell it in the form of real property is taxable. Therefore, a person who constructs, improves, alters, or repairs real property shall pay the tax on all materials purchased, which will be incorporated into real property in such a manner that the materials will lose their identity as tangible personal property.


B. Taxability is not affected by language in a real property construction contract or subcontract such as "tax included" or "tax exempt", except as provided in §D of this regulation or by any form of payment under the real property construction contract or subcontract, whether lump-sum, cost-plus, time and material, or otherwise.


By the way, "Section D" referred to in this quote, deals with sales to exempt organizations, e.g., government entities.


I suspect that if a builder/developer would express "sales tax" on a home sale document, several consequences would ensue:


 - Sales Tax enforcement would take the position that this sales tax, represented as being collected from the home buyer, would need to be forwarded to the State as "Sales Tax Collected" it would need to be reported on the "merchant's" periodic sales tax return. (This would negate the "income factor" for the builder.)


 - Sales Tax enforcement would penalize the home builder for assessing sales tax on real property. 


 - The home builder would not prefer this method, because in divulging the sales tax component of materials purchased, the builder is revealing his "cost" - and this is not something any merchant would willingly do. 


- IRS and the states would not recognize this as a valid deduction for Itemizing purposes, because it is an "illegal tax." (You cannot assess sales tax on the materials that have become an intergral part of the home, because those materials have lost their identity as "tangible personal property." AND, it is NOT a tax, it is the home builder's "mark-up" disguised as sales tax. (It is a "tax-avoidance" scheme.)


My advice to this questioner in California -  if you want to buy the home and agree that the total price stated (whether any part of the price is expressed as "sales tax" or not) is acceptable to you, go ahead and buy it, but do not try to use this "sales tax" figure as basis for an Itemizing deduction.


I realize I have cited Maryland law, and this questioner is in California - so it is possible that Sales Tax law could be different, as applied to this situation in California. BUT, that does not change Federal law as applied to the 1040.

   

I don't necessarily disagree with TR's response. I'm simply stating a practice that was very prevalent under the old rules when sales taxes were fully deductible and that seem to be returning as a result of recent law changes.

My practice is primarily real estate and construction.

What is "old" is "new" again.

JBE, CPA

 The listing of sales tax(if it is listed at all) will be a seperately stated item on the list of supplies costs.  Some states(including ca) require total disclosure from builders.  This is to show the buyer that the quoted supply costs were increased by sales tax for the area where the supplies are purchased even if the rate is different than the sale tax rate in the area of the home location.


This is informational only and not deductible.  I agree with JBE that this is an old practice that may again be seen.  I further agree with Suntaxman that it is not legal to deduct the tax.

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